Sunday, April 20, 2008

Creative accounting is to blame for the crunch

Sir, Within the pages and pages of press comment concerning the current turmoil in financial markets no one has answered the question, why?

How can a financial institution be allowed to set the worth of non-liquid assets held on its books, where there is no published value for such an asset and nobody wishing to purchase it? This is the same as a homeowner deciding his house is worth £300,000 when the true market value is only £100,000.

How can the regulatory authorities have allowed increasingly exotic “off-balance sheet instruments” to have grown to a $65 trillion market, when only a few short years ago it was negligible, without taking any steps to regulate this unprecedented growth?

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